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MONEY BOX
Presenter: PAUL LEWIS
TRANSMISSION: 2nd December 2006 12.00-12.30pm
RADIO 4
LEWIS: Hello. In today’s programme, just who will
gain and lose from the Pensions Bill published this week? Bob
Howard’s been looking again at the collapsed Christmas club Farepak.
HOWARD: Thousands of those who paid on some debit and
credit cards could get a full refund.
PHILIPS: I got it back on the Monday and I went to the
bank, lifted all the money and took it into work on the Tuesday. Oh
they were over the moon!
HOWARD: But do customers know that?
LEWIS: Will borrowing from doorstep lenders get
cheaper after the Competition Commission steps in? Savings bank ING
freezes the interest paid to savers. And as the dollar tumbles towards
50 pence, is New York or cyberspace the way to shop American this
Christmas?
But we start with those major changes to the state pension. The gainers
(according to the government) will be women who will have much
more chance of a full pension. But the changes won’t start until 2010,
leaving out millions of people approaching pension age now. And
there’s almost nothing in the changes for those who’ve already retired.
The big losers will be those under 47 who’ll wait longer for their state
pension – as late as 68 for those who are under 29 today. I asked
Pensions Minister James Purnell why the government was raising state
pension age.
PURNELL: Because we’re living longer and if we don’t do
this we’re going to be paying ourselves money which our grandchildren
and children would have to pay for and it would just be an unjustifiable
burden on future taxpayers. But I think when I talk to people, they do
understand that as we live longer we’re going to have to contribute for a
bit longer as well, so that the system is affordable.
LEWIS: And one of the things you’re doing is reducing
the number of years you need to qualify for a pension down to 30 years.
PURNELL: That’s right.
LEWIS: That does have this cliff edge, doesn’t it, that
people who reach pension age on 5th April 2010 will get one set of rules
and people who reach pension age on 6th April 2010 will get another set
of rules?
PURNELL: Sure, and the reason we’re doing that is because
we want to make as quick progress as possible. The traditional way of
doing that would have been to phase it in, for example, between now
and 2015. That could mean that we would get to sort of 65% of women
being covered in 2010 rather than 75%. And we thought that 2010 was
the right date to bring it in because obviously the people who will be
benefiting from it will also be the group of women who will be starting
to be affected by state pension age equalisation, so people who retire
before these rules come in will be retiring at 60; the group who benefit
from this will be retiring at something between 60 and 65 as the state
pension age goes up, as it was planned to already.
LEWIS: It also raises the difficulty, doesn’t it, of people
who are currently being written to by Her Majesty’s Revenue &
Customs, inviting them to make extra contributions. Some of them
should pay them because they’ll come under the old rules. Some of
them certainly shouldn’t. Is that going to be made clear to them
because at the moment I don’t think it is?
PURNELL: No, it is. All we can do is set out how the law is
likely to change and then it will be for people to make those decisions
themselves. We can’t do it for them because there are some people
who should still be making contributions – so people who are going to
retire before 2010, for example, or people who wouldn’t have 30 years
contributions anyhow.
LEWIS: And if people pay too many contributions that
are in effect wasted, will you give them back?
PURNELL: Obviously if contributions are paid properly,
then they aren’t refunded.
LEWIS: So no is the answer?
PURNELL: They have actually got 6 years to decide
whether to make those contributions. They can wait and see.
LEWIS: So your advice to people is not pay them and
wait and see?
PURNELL: I can’t give people advice, Paul. All I can say is
that what’s we say in the letter and they have to make those decisions
for themselves.
LEWIS: Now the other part of this, of course, is people
saving for themselves in what you’re apparently going to call ‘personal
accounts’. What is the advantage of them over the present system?
PURNELL: There will be automatic enrolment into a private
pension. For every £1 that you put in, from the state or from the
employer you will get a £1 as well, so that is effectively matching. And
what that will do is give you a minimum. We will obviously encourage
people to save beyond that.
LEWIS: Yes, but there’ll still be an awful lot of people
subject to means testing – about a third or 40% …
PURNELL: That’s right, yes.
LEWIS: … so there’ll be an awful lot of people who will
save up and who’ll find they’re not really getting any advantage
because they could have got means tested benefits instead.
PURNELL: No, that’s not true. If you look at the research
which for example the PPI have published this week …
LEWIS: The Pensions Policy Institute.
PURNELL: Yeah. They are an independent organisation
who’ve said that actually broadly people will have good incentives to
save.
LEWIS: They say some people will and they say many
people won’t. For example low earners in their 40s and 50s could
actually be saving up money and they’d be no better off.
PURNELL: The vast majority of people we think will be
better off. It will continue to be their decision, so when people are
automatically enrolled in they can obviously decide whether to opt out
– for example if they’re paying off high levels of debt. But, look, can I
just pick up your point about means testing because it does sometimes
give the impression that people are worse off if they’re on pension
credit? Actually half of the people who will be on pension credit at the
end of these reforms are people with a disability or who are caring for
someone with a disability where the system is extremely generous. It
gives them about £160 a week and then they get other benefits on that,
which can take them up to £200. So pension credit, instead of being
something which everybody gets, it becomes something which is an
insurance system against certain types of life events like becoming
disabled and tops up people’s income so that they are not living in
poverty in retirement.
LEWIS: What about people who are already pensioners
and who retire before 2010? There’s absolutely nothing in it for them,
is there?
PURNELL: Well of course the Bill was always about the
future; it wasn’t about today’s pensioners. You know the way that
we’ve addressed today’s pensioners needs has been through budgets
over the last few years, so when we came into power there were about 3
million pensioners in poverty. That’s now less than a million and that’s
because we have spent three times more than it would have cost to
restore the earnings like. We’re spending £10 billion more. So we’ll
continue of course to look at the needs of today’s pensioners.
LEWIS: So can we expect in parallel to this Bill some
new announcements to help today’s pensioners?
PURNELL: All I can do is point to our record in the past. I
can’t pre-judge future budgets. You know very well that I can’t do that.
LEWIS: Pensions Minister James Purnell. And you can
hear a longer version of that interview on our website,
bbc.co.uk/moneybox.
As customers of the failed Christmas club Farepak wait for vouchers
from a charity fund, it seems that thousands haven’t taken advantage of
a way to reclaim all their money if they paid by credit card or some
debit cards. Bob Howard reports on whether the banks are doing
enough to help them.
PHILIPS: My name’s Christine Philips, a Farepak agent
with 15 customers. I got it back on the Monday and I went to the bank,
lifted all the money and took it into work on the Tuesday. Oh they
were over the moon!
HOWARD: Christine Philips from Glasgow with a rare
happy ending for herself and her work colleagues who were all Farepak
customers. When the firm collapsed in October, they lost more than
£6,500 between them. They didn’t think they’d see that money again.
Then Christine realised that her Bank of Scotland Visa debit card,
which she’d used to pay Farepak, was covered by something called
charge-back. This meant if her goods weren’t delivered under the terms
and conditions of the card, her bank would compensate her. But it
didn’t prove to be an easy process.
PHILIPS: They tried to tell me that they couldn’t see me
for two weeks. I called them back and I managed to get an appointment
actually that day. The girl that I eventually spoke to said one of her
colleagues had put one through for someone else, but they’d got it back
saying that no it wasn’t possible to claim. But I insisted. I said, “Well I
want it put in anyway” and eventually she said, “Well yes, it looks like
you may get it back, but there’s no guarantee and it will take at least six
or seven weeks”. That was going to take us over Christmas into next
year.
HOWARD: Halifax Bank of Scotland has now paid
Christine back and refunded more than 1,000 customers a total of £1.3
million. Not everybody who paid on a debit card can reclaim the
money. If you paid on Visa Delta, you can; if you paid with Maestro
you can’t because it’s not written into the terms and conditions.
Anybody who paid on a credit card can claim because they’re covered
under the Consumer Credit Act. HSBC processed all of Farepak’s card
payments and it’s believed as many as 30,000 people may have paid
this way. Money Box asked HSBC if it would contact the Farepak
customers to alert them. It replied in a statement:
STATEMENT: HSBC has a list of every card that was used to
make a payment to the company, but the list does not include complete
contact details, certainly not enough for us to write to them with
confidence. The other card issuers do have full and current contact
details for these customers. We would urge them to write, reminding
them of the charge back rights on their Visa and Mastercard credit cards
and Visa Delta debit cards.
HOWARD: So it’s up to individual banks to let their
customers know. HSBC has written to its own customers, as have
Lloyds TSB and Halifax Bank of Scotland. Lloyds TSB estimates it’s
paid back £450,000 to credit and debit card customers. Barclays has
paid out more than £200,000 to its qualifying customers, but it’s not
contacting everybody that might be eligible for a refund. Suzy Hall
from the pressure group Unfarepak says all the banks should be taking
the initiative.
HALL: If they believe that they have customers who are
entitled to charge-back - then I believe, yes, they should write to them.
One bank says one thing, another says another, and there’s different
rules and people are getting confused. So I think it’s important for
people to you know recognise, ‘yes I paid with a Visa debit card’ and
go to their banks.
HOWARD: As a result of calls Money Box made this week
to Royal Bank of Scotland and NatWest, these banks have now decided
to write to their customers too. In their case, it will only be credit card
users who are eligible because the debit card they issue is Maestro, not
Visa Delta.
McCARTNEY: As at 7.30 this morning, there was over £6.4
million placed in the fund … (voice fades under)
HOWARD: Consumer Minister Ian McCartney announcing
on Thursday the total for the Farepak Response Fund. It’ll be paid out
in the form of vouchers for agents to distribute to their customers.
Farepak agent Christine Philips has already contacted the fund to say
not to send her any because she’s got her customers’ money back.
PHILIPS: It’s the first thing I thought of doing because
obviously it allows more vouchers for the people who haven’t a chance
of getting their money back at all. So I do think everyone should be
honest, be fair and contact them if they have had their money back.
HOWARD: The Farepak Response Fund told Money Box it
has no systematic way of knowing which agents have received their
money back and which haven’t. Shirley Young is the chair of the
trustees for the fund.
YOUNG: Unless we’ve heard to the contrary, we’ll be
taking it that the agent hasn’t received a refund and we’ll be sending out
vouchers. Of course there will be some risk in that, but there is with
anything. We envisage a lot of trust and a lot of honesty.
HOWARD: The fund says it’s working out a system for
people to return vouchers to them if the money they’ve paid to Farepak
has been refunded by a bank. Agents should receive vouchers to
distribute to their customers by 18th December.
LEWIS: Thanks, Bob. And Farepak agents and
customers who paid by credit card or Visa debit card should contact
their card provider for a refund.
There was some disappointment this week when the Competition
Commission announced it wouldn’t put any limits on the three figure
interest rates charged by doorstep lenders who lend money to low
income families and collect the repayments in cash. Instead it will try
to bring competition to this market by ordering the big home credit
lenders to share borrowers repayment records with high street banks
and give clearer comparison information to their customers. But that
doesn’t go far enough for campaigners like Damon Gibbons of Debt on
our Doorstep.
GIBBONS: Well we’ve got two main concerns. Firstly, the
Competition Commission themselves say that the remedies won’t be
implemented for at least another 12 months and in that time around
£100 million in excess profit will continue to be made by lenders in the
industry. The second big concern is that there’s no interest rate cap
here and that would have been an immediate way to return some of the
excess money to borrowers who are clearly on very low incomes –
about 80% of them earning less than £14,000 a year.
LEWIS: Damon Gibbons. Peter Freeman led the
Competition Commission enquiry. I asked him first why it would be
more than another year before their changes came into force?
FREEMAN: If you’re talking about measures to open up the
market, well they have to work and that means that they have to be
properly structured. It does take a certain amount of time, I accept that,
but I think it’s better to get it right than to rush into something and
really not have the same effect.
LEWIS: One of the things that not only Damon Gibbons
but many other campaigners have said is that you should have
introduced a cap on interest rates so we wouldn’t be seeing interest
rates of 100, 200, 300, 400, 500%.
FREEMAN: We did look very carefully at this. After all, we
actually tabled the idea of price caps and put them out for consultation.
The danger is that to be effective and to sort of bring down the numbers
that you’re talking about, the price cap would have to be quite low; and
at that point it would be unprofitable to supply the product to the higher
risk customers and they are the most vulnerable, and so we’d end up
actually reducing the supply of the product and actually damaging the
people who could least afford to be damaged. We have focused on
measures, which will put these vulnerable borrowers more in touch with
other cheaper forms of credit. That is the best guarantee of their
interest in the long-term.
LEWIS: And how will you introduce competition into
this market?
FREEMAN: Well we’re asking the larger home credit
providers to put their customers credit records onto the normal data
sharing bureau database.
LEWIS: So that other banks can then look at that
person’s record and think well maybe they are a good risk even though
they don’t have much money?
FREEMAN: I think many home credit borrowers are a
perfectly good risk. That’s why we’re taking trouble to make sure that
putting the information on doesn’t disadvantage them.
LEWIS: You’ve also got some advertising or
information proposals.
FREEMAN: One remedy is to require the establishment of a
price information website. A surprisingly large number of borrowers
have access to the Internet and that will enable even more comparison
to be made.
LEWIS: What level do you expect these various
measures to reduce the cost of borrowing to? Do you have any target in
mind?
FREEMAN: Obviously it would be beneficial to consumers
if the home credit product were made available to them at cheaper
prices, but it’s a high cost model and it’s always going to be quite an
expensive way to borrow. But we aim to open up customers to
alternative forms of credit, like low cost credit cards are considerably
cheaper than home credit, so that price pressure will then affect the
home credit product.
LEWIS: Peter Freeman of the Competition Commission.
Well with me is Ed Mayo, Chief Executive of the National Consumer
Council. Ed Mayo, you took this issue to the Competition Commission
because you were worried about the price of borrowing for low-income
families. Are you pleased with the outcome?
MAYO: Yes, I think the Competition Commission have
done a very thorough job here and they’ve put together a kind of set of
recommendations that interlink that I think really will bring prices
down and give people a fairer deal over time.
LEWIS: And how do you respond to the complaints from
people like Damon Gibbons about the delay and the fact there’s no cap
on interest rates? In one sense you know charging someone 200% or
300% sounds the problem. Why not just ban it?
MAYO: Well I’d you know like to thank Damon and
colleagues at Debt on our Doorstep who I think have supported the
campaign and the complaint that we brought through to competition
authorities. And I agree and am completely sympathetic with this idea
that actually because it takes a long time - and it does take a long time
to introduce these remedies - in effect the industry is pocketing another
I think we estimate £75 million in excess profits. Well, yes, that’s a
concern but equally these have to work, as Peter Freeman said.
LEWIS: And on the interest rate cap?
MAYO: Well there are three ways really to have
improved things for consumers in this market. I mean you know one
would be to ban this; second would be to improve it; or the third would
be to open up to other options. In effect an interest rate cap you know
would ban it. And so what the Competition Commission has done is
find ways to improve it – people get better, early rebates for example –
and to open up to other options. So over time that ought to bring prices
down and we hope and we will track to see whether it does that.
LEWIS: And do you really think that providing this
comparison website and sharing borrowers data with the banks will
genuinely introduce competition that will drive prices down through the
market?
MAYO: Yes, I think it will heat up competition within
the market, but I think there are other changes that we need to see really
to give people what they need, which is you know access to affordable
credit. People shouldn’t have to be thrown back onto these very high
cost lenders, and they’re thrown back onto them because of a
thoroughly inflexible benefit system. We estimate kind of over £330
million goes out in benefits into very high cost, predatory lenders in this
way.
LEWIS: So people are paid money from the state
because they have too little and they spend it on these very expensive
loans?
MAYO: There’s no flexibility really in the benefit
system. And where there is for example something called a social fund
- it’s a very inflexible, very old model of doing it. Equally we’ve got
the inflexible bank account system, which doesn’t allow people to save
money, you know pay bills in cheap ways, and then hits them with
swingeing costs that puts them into debt.
LEWIS: So the banks should be more flexible. But
you’re also saying, from what I gather, that the social security system
should get into the lending business?
MAYO: Yes. I mean what we find in a number of areas
is that the poor pay more for a range of goods and services. Credit is
high within that. Having I think got this success on home credit, what
we are now looking is to other parts of the picture and banks and bank
accounts are I think you know a good area where we now need to make
progress.
LEWIS: Ed Mayo from the National Consumers
Council, thanks. Well of course we asked the major doorstep lenders
for an interview and we asked their trade body, the Consumer Credit
Association, but none was willing to join us on Money Box.
ING Direct has been one of the most consistently good savings
accounts since it launched in 2003. There was always a competitor who
offered a fraction more interest, but ING never fell below the level of
the Bank of England base rate and its no strings or gimmicks approach
kept customers and, I have to say, much of the press comment happy.
Not any more. When the Bank of England raised interest rates from
4.75% to 5% last month, ING decided not to follow, freezing its rate at
4.75% and telling customers in an e-mail it thought they preferred
consistency to best buys. Mike Williams from Romsey is one of the
many unhappy Money Box listeners.
WILLIAMS: I can’t believe that any intelligent saver would
wish to have a lower rate of interest, particularly from a company that
over the last couple of years has made the point of how good their
savings rates are. ING have just gone into the mortgage business and
maybe this is one way they can give better mortgage rates, but I think
their customers deserve better than this.
LEWIS: Well Mike is already making plans to move his
money to a better paying account. Martin Rutland is from ING. I
asked him to justify the freeze.
RUTLAND: Everybody would like their savings company to
be offering the best rate all the time. But clearly that’s not possible, so
that’s why we put so much emphasis on consistency. There are a lot of
savings companies out there; there are launch accounts with new
customers. The rates offered there will go automatically to the top of
the best buy tables, but we don’t want to behave like that.
LEWIS: But isn’t that exactly what you’ve done? In
May 2003 you launched your account. It was the top of the table, more
than ½% above the base rate. Now you’ve slashed it to ¼% below base
rate. That is exactly what you’ve done.
RUTLAND: The best buy table that we take the most pride
of appearing in is the one that says who are the top companies over the
last 3 years who have offered a consistently good rate, and every
weekend when I pick up the Sunday papers ING Direct is in that table.
LEWIS: Yes, you sent round a table with your e-mail I
think on 30th November, but that table was already more than 3 weeks
old. It was dated 6th November before the base rate rose and before
most of your competitors put their rates up. Don’t you think it was
simply dishonest to send your customers an out of date table which
showed you top when you’re not top?
RUTLAND: Absolutely not. What that table does – it says
here are the top 20 issuers of savings accounts. It takes all of their easy
access accounts and it says what’s the average rates those top 20
companies are offering. Most of the accounts have not moved one jot.
LEWIS: Second to you in the table was 4.7%. It’s now
5%. It would be above you.
RUTLAND: Yes, but that table is meant to show the average
rates of all of the accounts that those banks offer.
LEWIS: So it’s a cunningly devised table to put ING at
the top; whereas most people would look at what they can get on their
money, which is a good point 7% more?
RUTLAND: It’s a table designed to say if you stay with most
of our competitors, watch out for the fact they may not have our record
on consistency.
LEWIS: And finally are you, as Mike suggested,
freezing this rate paid to savers so you can offer a better deal on the
mortgages?
RUTLAND: No, not at all. We’ve got a separate business
plan for mortgages. We’re going along with that nicely. They’re not
related.
LEWIS: Martin Rutland. There are several accounts
paying a higher rate than ING. Top at the moment are ICICI’s HiSave
and Landsbanki’s IceSave, which have base rate guarantees and pay
5.45%. Links to best buy tables are on our website,
bbc.co.uk/moneybox, where you can also tell us what you want from a
savings account.
Now which will arrive first – Christmas or the two dollar pound? As I
speak, £1 will buy you around $1.90-ish if you’re a tourist or on the
Internet, though the official rate is creeping tantalisingly close to $2 at
around $1.98. In other words, a dollar will cost you just over 50 pence.
It last reached $2, briefly, on 2nd September 1992 and of course a cheap
dollar means that US goods are cheap to buy. But how practical is it to
do your Christmas shopping in dollars? Live now to Simon Calder,
travel editor of the Independent. Simon, prices in New York low, but
you’ve got to fly there. Is it worth it?
CALDER: That all depends on how you see it. If you
simply want to save money, then yes it is possible. The fares between
now and the middle of December, you’re looking at £275 on a non-stop
flight on BA or Virgin Atlantic. However when you get there, you’ve
got to stay somewhere. Now I like to stay in a slightly dodgy hotel in
Brooklyn, which costs about $30 a night, but if you want a nice mid-
town Manhattan hotel you’re talking about £$200 or $300 a night. And
of course go out for a meal and besides the bill you’ll be chased down
the road for a decent tip if you don’t leave one. However, it is
genuinely true to say I think a lot of people find that the amount you
pay here in pounds, you pay in dollars there, and even with a tourist rate
of around 1.90 you are clearly looking at some good deals. But it’s not
quite as simple as that. The sticker price is going to be subject to local
sales tax, which will add 6% or 7%, and on top of that of course you
have duty and VAT on anything you want to bring back above £145
worth.
LEWIS: And if you pay in dollars on your credit card,
you’ll be stung with most of them for an extra charge. Now you say
£145. That’s the limit to what you can bring back through customs, is
it?
CALDER: Well that’s the duty free allowance. And any
item that is worth more than £145 – maybe you picked up a nice camera
or any kind of camcorder or something – that is then going to be subject
to a range of charges. You’ll have to pay VAT on everything unless
VAT is not payable, so that books for instance are VAT free. But
there’s also an incredibly complicated system of duty charges. So for
instance a palm pilot – if it’s an ordinary palm pilot, that’s zero duty; if
it’s got a calculator function, then you have to pay 4% duty. Typically
it’s between about 5% and 20%, which means when you add that and
you add the fact that VAT is put on the top of everything, you could
well be talking about putting up the price of what you’ve bought by a
third. That is of course if you declare it. Not everybody does.
LEWIS: Well I’m sure all Money Box listeners do,
Simon.
CALDER: I’m sure.
LEWIS: So it’s not a way to save money, but maybe a
fun way to do your shopping. But what about if you don’t want to go to
New York – you just want to sit in your front room on your computer
and shop on the Internet? Can you buy stuff in dollars and save money
there?
CALDER: You most definitely can, as plenty of people
have found. The problem is bringing it back in. Now if the package
that you are ordering, including postage, is worth less than £18 – so
you’re talking about $35 perhaps – then you shouldn’t have to pay
anything on it. Above that, duty and VAT becomes payable and you
could have either the delivery company coming around and demanding
cash from you before it will hand over the parcel; or increasingly, if it’s
the Royal Mail, they will say you’ve got to come to the sorting office,
give us some cash before you claim your prize. So the answer is keep it
under £18.
LEWIS: Simon Calder, thanks very much. Well that’s it
for today on that festive note. You can find out more from the BBC
Action Line – 0800 044 044 – and of course our website,
bbc.co.uk/moneybox, where you can contact us, listen to the
programme and of course join that debate on savings accounts which
many of you are having. Our phone-in Money Box Live on Monday
afternoon when I’ll be taking your calls on banking. I’m back next
weekend with Money Box. Today the reporter was Bob Howard, the
producer Jennifer Clarke and I’m Paul Lewis.